How to correct overstated compensation used to calculate allocations?

[Guest Enda80]

How to correct overstated compensation used to calculate allocations? This resulted from the calculation of self-employed earned income. The participant got more money that allowed by the plan for many years (11% of his or her compensation had it gotten calculated properly), but not over 404 or 415 limits. This happened for many years, so how would one correct it under current law?

[Jim Chad]

Need a few more details......What kind of Plan? MPP? or PS or 401(k)?

Are you saying he got more than the law or Plan allows or more than employees received?

[Guest Enda80]

The plan states that a participant will receive ten percent of compensation. This person's compensation got calculated incorrectly. Had they calculated it correctly, they would have seen that his or her allocation actually amounted to 11% of his or her correctly calculated compensation.

[Jim Chad]

Sorry about not replying enda80. I just got your personal message. There were 5 new messages I did not know I had. The upper right said "0new messages"I have got to learn how that works! Does anyone know of an instruction book?

To answer your question: I think you can self correct under VCP. I think it should work this way. The MPP Plan should forfeit his excess and apply it to the next years contribution.

If the 10% is fixed in the PS doc, that should be corrected the same way. If the PS has a discretionary contribution, it should be reallocated to all Participants, including the owner.

This is what I would do FWIW.

[Peter Gulia]

A good way to help clients avoid this kind of mistake is to use Gary Lesser's software, which can do some of the internal math about how retirement contributions for oneself and his or her employees affects self-employment income.

And it's always good to support a BenefitsLink advertiser: http://benefitslink.com/GSL/QPSEP_profile.html